Menu

Gold Price Tests $1,340/oz Level

The precious metals were steady in early trading on Wednesday, as spot gold opened virtually flat at $1,339 per ounce. There has been speculation about why the metals have rallied of late, with a range of different opinions (all of which sound fairly convincing!), from monetary policy to geopolitical strife to an old-fashioned run toward safe havens.

Platinum and palladium were mixed for the second straight session, though the former still held above $1,000/oz. Spot silver rose 0.4% this morning to trade at $17.93/oz.

Gold prices notched a one-year high yesterday after Fed Governor Lael Brainard wondered aloud about whether or not the federal funds rate should be raised again this year. Many investors and analysts have been treating an additional 0.25% increase to the fed funds rate as a foregone conclusion, but that view has shifted in recent days. Brainard, a noted policy dove, even suggested that the two rate hikes we’ve already seen this year could be having a negative effect by keeping inflation so subdued.

The rush into safe-haven assets has been fairly broad-based this week. In addition to gold rallying, the 10-year Treasury yield tumbled below 2.06% while equities around the globe have had trouble finding solid footing. The S&P 500 broke a six-session winning streak and the Dow plunged more than 200 points. Meanwhile, the dollar was flat on the DXY index this morning at 92.25.

Aside from Brainard’s comments and a renewed focus on monetary policy in general, some are attributing the precious metals rally to the stall in President Trump’s desired tax-cut legislation, among other challenges facing Congress. Gold has been known to help weather out volatility and uncertainty during times of an unclear domestic of geopolitical policy direction.

Moreover, the extreme weather in Texas and now potentially Florida poses another big economic risk in the short-term. The Federal Emergency Management Agency (FEMA) is reportedly on the verge of running out of funding due to Hurricane Harvey—at a time when Hurricane Irma, now a category 5 storm brewing in the Atlantic Ocean, is expected to pound the East Coast beginning this weekend.

In terms of economic news, the U.S. trade deficit widened during July, according to the Department of Commerce. One of the key bits of datum from the report showed that the trade imbalance with America’s (and most countries’) top trading partner, China, increased to its biggest shortfall in 11 months.

In any event, Goldman Sachs correctly called physical gold the “true hedge of last resort” in a recent note. This is an important distinction from gold ETFs, which come with their own set of risks. Nonetheless, according to the World Gold Council, exchange-traded funds (ETFs) backed by gold saw their holdings increase by 31.4 metric tons in August alone, which speaks to growing investor appetite for gold.

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.